Yahoo activist wins praise in ‘resume-gate’

But analysts say another CEO change would be setback for company

BenjaminPimentel

SAN FRANCISCO (MarketWatch) — Third Point Management is causing big headaches in the Yahoo Inc. boardroom in what one analyst dubbed ‘resume-gate.’

Reuters

Daniel Loeb, CEO of Third Point LLC, is waging a proxy contest against Yahoo Inc.

But the activist hedge fund, which exposed inaccuracies on the academic resume of new CEO Scott Thompson and has called for his departure, is winning praise from some analysts for performing the due diligence that the Yahoo
YHOO
board apparently didn’t.

Keith Moore, managing director of MKM Partners, called the scandal “resume-gate,” saying it has clearly boosted the reputation of Third Point and its CEO Daniel Loeb, who is waging a proxy campaign against Yahoo’s board.

“The bottom line is: the odds of his getting a board seat have gone up,” Moore said in an interview.

But some analysts also warn that another CEO change at Yahoo would be a setback for the beleaguered Internet giant, which has lost its leading position as a Web pioneer in the face of stronger rivals led by Google Inc
GOOG, +0.81%
Thompson is Yahoo’s fourth CEO in the last five years.

One analyst speculated that Thompson’s exit would be a potential disaster for Yahoo’s stock. So far, the scandal has had little effect on the company’s shares, which have dipped only 2% over the past week but remain down more than 5% since the start of the year — when Thompson was named to the post.

“Price is truth and look at what’s happened to the stock — it hasn’t moved much,” said BGC Partners analyst Colin Gillis. “There’s some positive view on what’s happening with Mr. Loeb’s activism.”

Yahoo investor Eric Jackson of Ironfire Capital also said, “I think it’s partly because the stock is already pretty cheap.” Yahoo shares have fallen about 50% over the past five years.

“I also think that investors think this turn of events will lead to at least Loeb getting on the board which will be positive for the stock,” Jackson added.

On Tuesday, Yahoo said director Patti Hart, who led the search committee in Thompson’s selection, was stepping down in a clear victory for Loeb. The chairman of International Game Technology, where Hart serves as CEO, said the board had asked her to step down from her Yahoo post because it could become “distraction” from her role at IGT.

Yahoo also announced that its board has formed a special committee to investigate the controversy.

Gillis said the controversy “adds credibility” to Loeb’s position, noting, “He put a lot of work into this.” Loeb and Third Point, he added, could essentially say, “Hey, look we’re the ones doing the work here.”

Susquehanna’s Herman Leung also said the “due diligence that Third Point has been able to do has been offering the investment community a lot more transparency” into Yahoo.

“None of the Wall Street analysts found out that he didn’t have that degree,” he said, adding that Loeb “is doing his homework for the ownership of stocks that he has and rightfully so. He’s uncovered information that is calling into question Scott Thompson’s credibility.”

But Leung also quickly noted that “it would be even more devastating for Yahoo” if they got rid of Thompson at this point. “It would be a disaster for the stock,” he said, adding that Yahoo has actually made some progress under Thompson.

Gillis echoed this point, raising the question whether getting rid of Thompson would be the best path forward for Yahoo.

“The question is rotating out the CEO — does it just delay the turnaround process by another six months — which means you’ve lost a year since Carol Bartz,” he said. “Is that for the best? It’s difficult to answer right now.”

Thompson became CEO in January, ending a period of uncertainty at the company following the firing of former CEO Carol Bartz in September 2011. The company has been run by four CEOs, including Terry Semel and co-founder Jerry Yang, since 2007.

“It’s a distraction and he’s the cause of it, not Dan Loeb,” he said in emailed comments. “If he had a good explanation, he would have given it by now.... Does it create uncertainty for him to leave now? Sure, but it will be much worse if he stays. I think there will be mass resignations if he stays.”

However, Moore of MKM Partners speculated that Yahoo will probably opt not to fire Thompson, saying, “I don’t think the company is going to go that direction. It would pretty much put them in disarray.”

He added that if Loeb does make it to the Yahoo board, he is expected to focus on an important issue for Yahoo investors: what to do with the company’s sizable Asian assets, highlighted by huge stakes in Alibaba Group and Yahoo Japan.

“The important thing I believe is that if it appears to the Street that Loeb will have board seats, I think the Street will believe those Asian assets will be monetized quicker and possibly in greater size,” he said.

Moore believes Loeb’s emphasis “would be on short-term value realization,” although, he acknowledged, that could conflict with investors with longer-term goals for Yahoo. But Yahoo’s investors at this point have many frustrations with the company.

“Quite frankly, my guess is any shareholder at this stage would just want to see their stock worth more,” he said. “It’s just been a difficult holding for anybody.”

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